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ESG and financial performance of banks in the MENAT region: concavity–convexity patterns

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  • R. El Khoury
  • N. Nasrallah
  • B. Alareeni

Abstract

This study aims to investigate the impact of Environmental, Social and Governance (ESG) on bank performance (FP) in the Middle East, North Africa and Turkey (MENAT) region. The sample consists of 46 listed banks between 2007–2019. FP is measured through accounting (Return on Assets Return on Equity) and market indicators (Tobin’s Q Stock Return ). We test the effect of ESG and its quadratic term on FP by controlling for bank-specific, macroeconomic and financial development variables. Our results support the presence of a non-linear ESG–FP relationship. ESG incremental investments remain beneficial till reaching an inflection point. Interestingly, the financial development variables are significant, while ESG pillars follow different patterns. Governance pillar has a concave relationship with accounting performance while environmental pillar has a convex relationship with the market return. The ESG–FP relationship depends on three vectors: pillars; measure of FP; and level of ESG. Banks should determine ESG turning points to rationalize their investments and contemplate efficient returns.

Suggested Citation

  • R. El Khoury & N. Nasrallah & B. Alareeni, 2023. "ESG and financial performance of banks in the MENAT region: concavity–convexity patterns," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 13(1), pages 406-430, January.
    • Handle: RePEc:taf:jsustf:v:13:y:2023:i:1:p:406-430
    DOI: 10.1080/20430795.2021.1929807
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    Cited by:

    1. D’Apolito, Elisabetta & Galletta, Simona & Iannuzzi, Antonia Patrizia & Labini, Stefania Sylos, 2024. "Sustainability and bank credit access: New evidence from Italian SMEs," Research in International Business and Finance, Elsevier, vol. 69(C).
    2. Agnese, Paolo & Cerciello, Massimiliano & Oriani, Raffaele & Taddeo, Simone, 2024. "ESG controversies and profitability in the European banking sector," Finance Research Letters, Elsevier, vol. 61(C).
    3. Wu Ning & Ummar Faruk Saeed & Angelina Kissiwaa Twum & Abednego Osei, 2024. "Can ESG disclosures promote firms going concern? Evidence from BRICS countries," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 3792-3803, September.
    4. Mario La Torre & Lucilla Bittucci & Cosimo Paccione & Alessia Palma, 2024. "Evaluating the sustainability profile of banks: A comprehensive benchmarking analysis in the Italian context," Business Strategy and the Environment, Wiley Blackwell, vol. 33(4), pages 3654-3668, May.
    5. Sérgio Resende & Ariadna Monje‐Amor & Nuria Calvo, 2024. "Enterprise risk management and firm performance: The mediating role of corporate social responsibility in the European Union region," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(4), pages 2852-2864, July.
    6. Riahi, Rabeb & Bennajma, Amel & Jahmane, Abderrahmane & Hammami, Helmi, 2024. "Investing in cryptocurrency before and during the COVID-19 crisis: Hedge, diversifier or safe haven?," Research in International Business and Finance, Elsevier, vol. 67(PB).
    7. Li, WeiWei & Padmanabhan, Prasad & Huang, Chia-Hsing, 2024. "ESG and debt structure: Is the nature of this relationship nonlinear?," International Review of Financial Analysis, Elsevier, vol. 91(C).
    8. Arnone, Massimo & Leogrande, Angelo, 2024. "The Sustainability of the Factoring Chain in Europe in the Light of the Integration of ESG Factors," MPRA Paper 121342, University Library of Munich, Germany.
    9. Yavuz GÜL & Ceren ALTUNTAŞ, 2024. "Do ESG Ratings Affect Stock Prices? The Case of Developed and Emerging Stock Markets," Sosyoekonomi Journal, Sosyoekonomi Society, issue 32(60).
    10. Syed Shoaib Nazir & Taimur Ashiq & Mazhar Farid Chishti & Riffat Ullah & Athar Marwat, 2024. "Assessing Financial Stability through ESG: The Impact of Sustainable Finance on Commercial Banks listed in Pakistan Stock Exchange (PSX)," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(3), pages 120-129.

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